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Issues Involved:
1. Whether the Income Tax Officer (ITO) had the authority to issue notices under Section 35 of the Indian Income Tax Act, 1922, for rectification of mistakes in the assessment orders. 2. Whether the ITO applied his independent mind or acted under the instructions of the Commissioner of Income Tax (CIT). 3. Whether the taxes were paid by the company within the statutory period of three years. 4. Whether the ITO had jurisdiction to rectify orders that had merged with the appellate orders passed by the Appellate Assistant Commissioner (AAC) of Income Tax. Issue-wise Detailed Analysis: 1. Authority of ITO to Issue Notices under Section 35: The ITO, Kota, issued notices to the petitioners under Section 35 of the Indian Income Tax Act, 1922, for rectification of mistakes in the assessment orders. The ITO concluded that the dividend income received by the petitioners from the company was erroneously grossed up since the company had not paid income tax on profits out of which the dividends were declared. The ITO recomputed the total income of each petitioner for the relevant assessment years and raised a demand for the difference in the amount of tax payable. 2. Application of Independent Mind by ITO: The petitioners argued that the ITO should be satisfied independently about the existence of the alleged mistake and should not act merely on the directions received from higher authorities. The court found that, except in Writ Petition No. 133 of 1963, there was no evidence to show that the ITO did not apply his independent mind or was influenced by instructions from the CIT. The notices issued by the ITO indicated that he considered the matter and felt that the earlier assessment orders suffered from an error apparent on the record. 3. Payment of Taxes by the Company: The petitioners contended that the company had paid all taxes within the statutory period of three years. However, the court found that the averments in the writ petitions were insufficient to show that the entire amount of taxes due for the relevant years were paid by the company within the specified period. The court noted that any amount paid by the company to the Rajasthan Government allegedly in lieu of income tax, super tax, surcharge, etc., could not be considered a proper payment of such taxes by the company. 4. Jurisdiction of ITO to Rectify Orders Merged with Appellate Orders: In Writ Petitions Nos. 132 of 1963 and 133 of 1963, the petitioners argued that the ITO had no jurisdiction to initiate rectification proceedings under Section 35(9) of the Act, as the original assessment orders had merged with the appellate orders passed by the AAC. The court held that the ITO could not rectify an error that was alleged to have been committed by the AAC while reversing the order passed by the ITO. The court emphasized that the purpose of creating a hierarchy of authorities with appellate or revisional jurisdiction would be frustrated if the ITO could set aside any order passed in appeal or revision. Therefore, the rectification orders passed by the ITO in the case of these two petitioners were without jurisdiction. Conclusion: The court allowed Writ Petitions Nos. 132 of 1963 and 133 of 1963, setting aside the notices issued by the ITO under Section 35 of the Act. The remaining 13 writ petitions were dismissed. The parties were left to bear their own costs.
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